Asian Currencies Climb, Led by Won, on Growth, Rate Outlooks

Jan. 9 (Bloomberg) -- Asian currencies rose this week, led by the South Korean won and Indian rupee, as the outlook for economic growth and interest-rate increases in 2010 attracted overseas funds to the region’s assets.

The Bloomberg-JPMorgan Asia Dollar Index started the new year with its best weekly performance since May, as reports in Indonesia and Taiwan showed exports are rebounding. China data due in coming days may show overseas sales increased last month for the first time since October 2008, according to a Bloomberg News survey. Emerging-market stock and bond funds extended 2009’s record increase in inflows, EPFR Global said.

“The bullish outlook for Asian currencies remains in place and we continue to favor the likes of the won, Indonesian rupiah and the rupee but we would also caution at getting too carried away,” Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong, wrote in a research note yesterday.

The won climbed 2.9 percent to 1,130.75 per dollar at the 3 p.m. close in Seoul from a week ago, the biggest gain in eight months, according to data compiled by Bloomberg. The rupee rose 1.8 percent to 45.7652 and the rupiah appreciated 1.9 percent to 9,215. The Asia Dollar Index rose 1.0 percent, adding to last year’s 3 percent rally.

Developing-nation equity funds received $2.2 billion in the week to Jan. 6, while those investing in high-yield and emerging-market fixed-income securities drew $560 million, according to U.S.-based research company EPFR.

Korea Rate Outlook

Korea’s won advanced toward its highest level in almost 16 months as the central bank flagged plans to raise interest rates.

Bank of Korea Governor Lee Seong Tae said borrowing costs should be normalized to reflect the economy’s recovery from a slump, after he kept the seven-day repurchase rate at a record- low 2 percent yesterday. South Korea is “closely” monitoring the movement of the nation’s currency, Ahn Byung Chan, director general of the Bank of Korea’s international bureau, said in Seoul.

“We think we’ll see 50 basis points of hikes in the first quarter, which means the BOK can be a little more comfortable with Korean won strength because that can also tighten monetary conditions,” said David Mann, senior strategist at Standard Chartered Plc in Hong Kong. “They’ll continue to be cautious about any moves that are large on any one particular day.”

The currency may rise 3.7 percent to 1,090 per dollar by the end of the year, while the central bank may increase the benchmark rate by a full percentage point, according to surveys by Bloomberg.

Thai Rate Decision

Bank Indonesia this week also opted to keep borrowing costs unchanged at 6.5 percent, a yield premium that made the country’s stocks and bonds among the best performers in the region last year. The rupiah had its biggest weekly gain in three months and may climb to 9,000 by Dec. 31, Bloomberg surveys show.

Indonesia’s economy is forecast to expand by as much as 5.5 percent this year, Finance Minister Sri Mulyani Indrawati said on Dec. 8. Gross domestic product increased 4.3 percent last year, the central bank said on Jan. 6, after keeping rates on hold.

Thailand’s central bank meets on interest rates on Jan. 13, with policy makers forecast to keep the benchmark at 1.25 percent, according to all 15 economists in a Bloomberg survey.

The baht traded near a three-week high after Finance Minister Korn Chatikavanij said on Jan. 7 the government will spend as much as 5 percent of gross domestic product in 2010 to boost an economic recovery. The baht rose 0.6 percent this week to 33.16 per dollar in Bangkok.

Asian Inflows

“It should not be surprising at all that the baht should see some moves this week,” said Gundy Cahyadi, an economist at IDEAglobal in Singapore. “This week, Asian currencies have been gaining, the reason being that there is a surge in appetite early in the year. Inflows are coming into Asian bourses as growth normalizes across the world.”

Overseas investors added to holdings of regional stocks this week, with Japan, Taiwan and Korea attracting the biggest inflows. The MSCI Asia-Pacific Index of shares climbed 3.1 percent this week, and reached the highest level since August 2008.

Yuan forwards rose to the highest level in more than a month on speculation the central bank will resume appreciation in the currency this year as China’s exports rebound from a slump.

China Exports

China signaled on Jan. 7 that it may start to unwind monetary stimulus measures to curb asset-price inflation, after the central bank sold three-month bills at higher interest rates for the first time in 19 weeks. A government report, due Jan. 10-14, may show exports rose 5 percent in December, the first gain in 14 months, according to a Bloomberg News survey.

“The market probably read the central bank’s moves as positive, showing the authorities are a little bit more comfortable with a recovery,” said Emmanuel Ng, a currency strategist at Oversea-Chinese Banking Corp. in Singapore.

Twelve-month non-deliverable yuan forwards rose 0.6 percent this week to 6.6274 per dollar in Hong Kong, indicating brokerages are betting the currency will advance 3 percent from the spot rate of 6.8281 in a year. The contracts touched 6.6205 yesterday, the strongest level since Dec. 4.

Elsewhere in Asian trading, the Philippine peso climbed 0.9 percent this week to 45.81, Taiwan’s dollar rose 0.5 percent to NT$31.88 and Malaysia’s ringgit climbed 0.8 percent to 3.3775.